Should Europeans pay to receive phone calls?

A new report commissioned by the EU recommends the abolition of termination fees, the proportion of call costs which is paid to the receiving network, on the grounds that the internet survives without them and the internet is going to be everything, anyway.

The report (summary: pdf), conducted by the German telecoms research group WIK - or Wissenschaftliches Institut für Kommunikationsdienste, to give it its full name - looks at interconnection fees on the internet. And it discusses how termination fees are slowing development of telephony, and hurting consumers. The full report is here as a pdf.

In Europe the termination fee is a proportion of the cost of a call which is passed on to the receiving network, to pay it for carrying the call. This is known as Caller Party Pays (CPP, or CPNP as WIK insists on dubbing it), as the person making the call pays for the whole call.

Bill of Rights

When the telephone was introduced to Europe, monopoly telcos just told customers how much they owed and customers just paid up. American consumers were a more feisty bunch, who didn't take their telco's word on trust. They wanted itemised billing. The US operators decided that itemising local calls was too much like hard work, so they offered them for free.

When mobile phones arrived the US they were given area codes matching the place they were sold. So if you bought a phone in San Diego someone calling you from that city would expect the call to be free. Someone has to pay for the mobile element, so Americans find themselves paying to receive calls on their mobiles.

WIK correctly compares this to the internet model: when you call someone using Skype you pay for your part of the connection, by eating into the usage cap on your broadband connection; and the person receiving the call does the same. You each pay for your part of the connection. Although that may be through a fixed monthly fee - the cost is still split evenly between you and the person you are calling.

WIK argues that such peer-to-peer connections will be increasingly how the internet operates. The researchers then swallow the red pill by suggesting that YouTube is a prime example of such a service. "The users (and their respective computers) typically have a symmetric peer-to-peer relationship with one another. The content is shared among users, rather than emanating from a central server." YouTube, of course, emanates from a central server.

Out of Africa

Termination fees are important for developing countries: they collect termination fees on received calls and use that income to build more infrastructure, while internet connections are simply money-pits where access must be bought from (generally American) service providers until sufficient traffic can be generated to set up a peering agreement. The report accepts this, but then dismisses it by pointing out that Europe needs no more network infrastructure.

The authors make much of how the US system encourages mobile use, especially since the evolution of capped-flat rates "Flat rate plans, whether banded or not, tend to encourage use of the service." Do Americans really spend as much time on their cellphones as do Europeans?

The EU report stops short of recommending all termination fees be immediately abolished, though only because it will take time to implement and abolition is the stated aim.

It is debatable if European users are willing to start paying to receive calls, and it would be a very brave EU that seriously suggested such a thing. But the WIK analysis suggests we will have to change our business practice as we move towards an all-IP network. ®